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Japanese Pharmaceutical Market Faces Challenges

Competition from generics and regulatory pressure to reduce drug prices have pushed Japan's pharmaceutical industry into a period of declining growth, according to a Frost & Sullivan report.

Japan is the world's second-largest pharmaceutical market with a global market share of 11%. But over the past 10 years, the Japanese market has increased 1.6% annually compared with 15% annual growth in the United States and a 5% annual increase in Europe.

An aging population with increased medical expenses has strained Japan's government-backed universal health-care system, prompting the government to reduce spending on health care and to impose drug price revisions biannually.

Japan's pharmaceutical pricing system also may be hurting the market. The Japanese government reimburses medical agencies for drugs at an officially set price regardless of the actual purchasing price. The difference in the purchase and official price are then paid to the medical agency or the prescribing or dispensing doctor, putting a further strain on the health-care system, Frost & Sullivan reports.

In turn, R&D efforts are hindered because new, more effective drugs have higher market prices, discouraging doctors from prescribing them and reducing profits for pharmaceutical companies.

However, Japan is implementing a system called a Bungyo to separate prescribers from dispensers. The platform is expected to be 80% established by 2010 with the hope that doctors will prescribe medicines based on efficacy rather than monetary gain. Several recent mergers may also strengthen Japan's global pharmaceutical market, according to Frost & Sullivan.